CEO explains why he's seen interest from pensions and institutions ebb and flow, and why he sees "real money" coming into crypto from institutions now
When asked how pensions and other institutional investors historically used cryptocurrencies like bitcoin Fred Pye offers one quick response: sparingly. Pye is the Chairman & CEO of 3iQ Corp, an investment fund manager which offered some of Canada’s first regulated crypto asset funds. He explained some of why pension funds and other institutions have been sparing with their crypto allocations, reviewed the historical context of recent years in crypto, and outlined why he’s seeing renewed interest from these players today.
“We heard for a long time that the pension people like blockchain but they don’t like bitcoin. I think everybody understands now that you can’t have one without the other,” Pye says. “I think the education in the last decade has been phenomenal…and the numbers and performance of digital assets state that the pension funds that haven’t invested are being left behind.”
Pye mirrors the changing attitudes towards crypto with his own company’s history. Their first exempt market fund was launched over 2014 and 2015 with access to various digital assets. The fund was initially closed down by the OSC before Pye and his firm won their appeal to the OSC which enabled the rollout of regulated bitcoin products. These products, much like the recent launch of regulated bitcoin ETFs in the United States, allowed pension funds and institutions to access crypto assets in the alternatives bucket of their portfolio.
It has not been smooth sailing for crypto or pensions from there, though. During the wave of crypto excitement that took hold during 2020 and 2021, when bitcoin hit historic highs, more Canadian pension funds and institutions entered the space. Famously the Ontario Teachers’ Pension Plan through their Teachers’ Venture Growth platform lost $90 million US on investments in the disgraced crypto-exchange company FTX. Other, less extreme, examples of losses and volatility encountered through crypto and crypto-related investments in 2022 pushed some pensions away from the space.
Pye says that against that backdrop he has been working to educate investors of all kinds. He says that FTX never passed 3iQ’s own due diligence process and that holding a stock related to crypto assets brings both market risk and crypto price risk into a portfolio. Throughout the period of deleveraging and scandal in 2022 that Pye refers to as ‘crypto winter’ he says that his funds lost nothing to fraud cases like FTX.
Bitcoin and other cryptocurrencies emerged from crypto winter with strength. Bitcoin returned 146.79 per cent in 2023 and has returned over 50 per cent year to date. With this resurgence, and the ongoing concerns about volatility and persistent inflation, Pye says that his firm is seeing more interest in bitcoin, with investors treating it as an asset with real scarcity, akin to gold.
“We’re starting to see real money. Not just money that companies expect to lose. These people are investing in bitcoin now because they expect to lose everything else,” Pye says. “If we continue to print money, they’re saying, ‘I better have bitcoin and I better have gold.’”
Beyond the proscribed scarcity of bitcoin, built into its code, Pye sees another driver of its value that institutions are paying more attention to: facilitating the digitization of global currencies. Bitcoin’s deep connection to blockchain technology, Pye explains, means it benefits from the global drive to make transactions instantaneous and secure around the world. Blockchain is a key technology that can underpin and secure those transactions and bitcoin allows pension funds to access that.
Plan sponsors may remain wary of bitcoin and other crypto assets due to the experiences of 2022. Pye notes, however, that a younger working population more comfortable with technology and a growing pool of retired members ballooning plan liabilities should prompt a more serious consideration of bitcoin and crypto among pension fund managers and plan sponsors.
“Pensions are going to be responsible to the next generation, to the members putting money into these plans today, and they could be sitting there saying, ‘how did you miss out on this asset class?’” Pye says. “Without bitcoin your pension could be in serious trouble.”
